Ryanair: Waiting in the Long Grass

                                                         

Yesterday (Wednesday 16^th May) Southwest Airlines announced that it is to defer the delivery of 30 Boeing 737-800s from 2013/4 to 2017/8 to reduce capital spending by $1 Billion and to help it improve its Rate of Return on Capital (ROCE) to 15%.  The Southwest Airlines CEO Gary Kelly stated “Until we hit our return on capital target, we don't plan to grow our fleet, we will keep our fleet roughly flat and maybe slightly down (in) 2012."

The Southwest Airlines delivery deferment will put further pressure on OEM’s in an increasingly competitive market, as a number of high profile carriers have already indicated they will defer orders to concentrate on improving their own financial performance and generating higher returns on capital, these announcements will further strengthen the hand of Ryanair in negotiations for a new order of up to 400 new aircraft with its cash reserves of €3.5 Billion.

                                       
                                                 

The Ryanair negotiating position will be aided by Emirates Airlines, IAG and Lufthansa CEO Statements warning of further industry structural changes through airline failures and consolidation.

Ryanair will no doubt be pleased by the announcement that Boeing will aggressively seek market share through a price war in the A320NEO/737MAX market to retain a 50% share within a year (Wall Street Journal 15^th May 2012).

The key for Ryanair will be to remain in the long grass until is approached by OEM’s (Airbus, Boeing) seeking to keep production lines busy through an attractive priced deal. The 2011 Full Year results due out next Monday 21st May may provide a further insight into the issue although an order maybe at least 18-24 months away.

Jet Technology Centre Launches New Safety Slide Product Line

Irish Airlines Reports April Traffic

                                                               

The Aer Lingus Group announced that it carried 811,000 passengers in April up 3.2% with a load factor of 72.7% up 2.8%. The airline carried 79,000 long-haul passengers up 8.2% with a load factor of 75.1% up 5.6% and it carried 732,000 short-haul passengers up 0.7% with a load factor of 71.5% up 1.4% as the carrier phased parked winter capacity back into the system from the 26^th of March for the summer scheduled.

                                                       

                                                       

The Aer Lingus Regional operation carried 79,000 passengers in April up 27.4% driven by the launch of the summer schedule and the transfer of routes operated under the Aer Arann Regional brand name. The total Aer Lingus traffic stats as usual exclude traffic carried under the United Airlines Joint Venture Washington Dulles to Madrid route.

The Air France-KLM Group is expected to announce next month the future shape of regional business unit which will see Brit Air, Cityjet and Regional Airlines operate under a single brand name as part of the ‘Transform 2015’ cost reduction program.

                                                    


Ryanair announced that it carried 7.2 million passengers in April up 6% with a load factor of 82% up 1% and year to date to the end of April it has carried 76.3 million passengers. The return to positive traffic growth indicates the return of 80 + Boeing 737-8AS parked aircraft to service & new deliveries for the launch of new bases and summer seasonal routes from bases across Europe

EI-EVM Boeing 737-8AS c/n 40296 Delivered 03/04/12

EI-EVN Boeing 737-8AS c/n 40294 Delivered 06/04/12

EI-EVO Boeing 737-8AS c/n 40297 Delivered 24/04/12

EI-EVP Boeing 737-8AS c/n 40293 Delivered 27/04/12.

The carrier has a further 11 Boeing 737-800s to be delivered between September 2012 and March 2013 which will see the carrier complete its contract with Boeing although it has given no indication to the status of the 174 options outstanding. A further update on negotiations for a potential new order for up to 400 new aircraft is expected with the Ryanair Full Year Results due to be announced on Monday 21^st of May.

New Blog Post: Emirates Airlines Dublin route breaks record

                                                             

Emirates Airlines has broken all records with the performance of its Dublin route with the carrier upgrading the route a Boeing 777-300ER such is the level of demand two months ahead of schedule originally which was planned for the 1^st of July with A6-EBC Boeing 777-36NER c/n 32790 operating the first flight yesterday.

                                            

The carrier commenced the route on the 9^th of January with an Airbus A330-200 with the carrier having consistently having load factors in excess of 90% from the first day of operation, thus the Dublin route has exceeded all expectations as an A330-200 would serve the route for 2 to 3 years before being upgraded to an Boeing 777-300ER despite the competition from Etihad Airways in the market for connecting traffic via their respective hubs.

                                            


The introduction of the Boeing 777-300ER on the route will increase average daily capacity by 52% in a three class configuration with 25 tones of cargo capacity which will be of benefit to export market. The airline is the world’s largest operator of the Boeing 777 with 106 in service including 3 Boeing 777-200, 6 Boeing 777-200ER, 10 Boeing 777-200LR, 12 Boeing 777-300 and 70 Boeing 777-300ER with a further 78 on order and its cargo subsidiary Emirates Sky Cargo operates 5 Boeing 777-200F.

On the Newstalk 106-108FM Breakfast Show with Ian Guider on the 20^th of October 2011 the Emirates VP Ireland & UK Laurie Berryman stated ‘Never say never’ to the airline using the Airbus A380 on the Dublin, adding talks where held with the Dublin Airport Authority (DAA) on the type using Terminal 2. The airline has a policy of increasing aircraft size rather than increasing frequency (Business Travel News).

Etihad Airways acquires a 3% stake in Aer Lingus

                                                             

On Tuesday 1^st of May it was announced that Etihad Airways acquired a 2.987% stake in Aer Lingus for an undisclosed sum, a week after Transaero Airlines acquired Air Atlanta Aero Engineering in Shannon which is a further endorsement of the strength of the aviation industry in Ireland.

Aer Lingus issued a statement ‘Aer Lingus and Etihad are engaged in discussions which to date have focused on reciprocal code-share opportunities, Future discussions may explore additional commercial and cost opportunities to develop a closer working relationship in areas such as joint procurement’.

Their could be immense opportunities for Aer Lingus and Etihad Airways out of a possible commercial agreement,firstly a new code-share agreement would leverage the strengths of each perspective hub as Aer Lingus has a strong brand presence in North America and UK Provincial markets (Aer Lingus Regional) and the competitive advantage of Terminal 2 US CBP in Dublin. Their has been media reports Etihad Airways intends to increase the frequency of Dublin route from 10 to 14 flights per week which could open potential mutually beneficial connecting traffic flows over Dublin.

Aer Lingus has the fourth largest slot portfolio in London Heathrow which could be mutually commercial opportunity for Etihad Airways planning to increase Abu Dhabi route from three to five flights daily. Etihad Airways has a strong market presence in Asia and Australia with the carrier signalling recently China and India will be strategically important markets in the next 10 to 15 years with strong outbound traffic from those markets.

                                      

Aer Lingus and Etihad Airways share a common fleet platform with A320 family for short-haul and A330 for long-haul both carriers have the A350 on order so there could be potential synergies as part of a larger airline group. Aer Lingus plans to place an order to replace its 37 A320/1s in the next 18-24 months it is currently evaluating the A320NEO and B737 Max.

There could be potential joint procurement synergies with Etihad Airways in airport costs, aircraft acquisition/financing, distribution/GDS (Sabre),  fuel, ground handling, and supply chain, sales & marketing also to leverage code-share opportunities with Etihad Airways partners such as Virgin Australia.Their could be scope for Aer Lingus to address the increasingly counter-cycle seasonality of the business through sub-leasing aircraft for the winter period.

Interestingly Aer Lingus and Etihad Airways share a multiple partnership strategy which could potentially ensure Aer Lingus independence as part of a larger airline group. Etihad Airways acquired 29.21% of Air Berlin in December 2011 and 40% of Air Seychelles last January. We await with interest the next developments with this story as a new chapter begins for Aer Lingus.

Boeing 737-200 Experienced Technical People require for Missionary Project

Experienced technical people required: retired or available technicians, both mechanical and avionic (but preferably avionic) experienced people who could assist a missionary project in Botswana. No license required.

It would suit somebody who could train a few young guys in the fine art of reading wiring diagrams, troubleshooting, locating wiring snags, etc.

Botswana is a nice, peaceful place, plenty of sunshine and relaxed atmosphere for somebody who would like to take on a little adventure, be it for a short, medium or long term commitment, ideal for the guy that would like to give something back or just do something different for a while.

These people operate on a not for profit basis, so if you want to make a lot of money, it’s not for you.

They will obviously, cover expenses, flights, bed and board, etc. for the right person. Anybody with any interest can contact me, Hugh Kelly, via email at aerhugh@yahoo.ie and I will explain in more detail the operation and expectations.

Dublin Aerospace Reveals Expansion Plans

                                                
“Conor McCarthy has turned this belief on its head by growing Dublin Aerospace into a hugely successful brand in aircraft maintenance based on the premise of high quality and cost competitiveness”-Frank O’Keeffe Partner E&Y Entrepreneur of the Year.

On Tuesday the 8^th of March I had the pleasure of attending the Royal Aeronautical Society Lecture by the Chairman Dublin Aerospace Conor McCarthy in Wynns Hotel Abbey, where there was a large audience in attendance to hear the developments taking place at the growing young company which has grown from six employees to over two hundred now entering its third year of operations.

                                              

                                         


The Dublin Aerospace Chairman has vast wealth of experience in the aviation industry- Aer Lingus Commuter CEO, Director and Co-Founder of Air Asia and Director of Group Operations at Ryanair and is Managing Director at PlaneConsult. The experience and knowledge of these businesses enabled Conor to launch a new MRO Model Dublin Aerospace.

                              'Our Employee Model is everything to us'

The lecture was opened by Paul Gorey Chairman of the Royal Aeronautical Society with the opening statement ‘We are getting the industry back on its feet’ which set the tone for the lecture, which was followed by the Head of APU Services Fergus Woods showing three videos of the three business unit’s APU Services, Base Maintenance and Landing Gear Services to give an insight into the business.

              'If you are caught in the middle of the road with strategy you are dead'

The closure of SR Technics enabled Dublin Aerospace to start-up without the legacy structure of its predecessors on the site, with Conor McCarthy assembling a group of investors to raise $25 million to set-up the new business.

The employment model is unique in the MRO business in that company deals directly with its employees and on the first day of employee staff receive a letter stating the competitive nature of the global business. The Labour model is based on that of Low-Cost carriers focused on efficiency, productivity and safety with a strong customer focus, employees are incentivised through a 20% profit share scheme each quarter.

                                  'It is your business-Take responsibility'

Dublin Aerospace broken the model of its legacy prodcessors by focusing on a narrow product line thus reflecting the low-cost business model. The company focuses on Base Maintenance in the Airbus A320 Family and Boeing 737 Classic and Next Generation and in business units APU and Landing Service Centres

                
The Dublin Aerospace Model it’s a three legged stool-APU , Base Maintenance and Landing Services, as each unit helps to cross-sell products. In start-up phase having the three units operational was really important, to enable sales and product focus to develop competences, capability and sell man-hours.

                              'Team Leaders are like captains in a sports team'
                        
The three business units (APU, Base Maintenance and Landing Gear) are run by a team leaders who are responsible for the Profit & Loss (P&L) and the team. The teams are thoroughly integrated with engineering, finance, marketing and planning and each pays it own overhead costs which ensure the centres are run as tight as possible.
　
Dublin Aerospace has ambitious plans for growth ahead in two years time when the Aer Lingus Base Maintenance contract comes up for renewal it will bid for the A330s to win the A320 family business contract.

The company plans to develop it’s APU Service Centre in addition to generating repeat airline fleet business from it’s existing customers Aer Lingus, Air Via and XL Airways Germany.

The company plans to develop its relationship with the aircraft lessors with Ireland a leading centre in the business with the large concenration in the IFSC and Shannon.

The collapse of Spanair saw 14 Airbus A320/1's aircraft being ferried to Dublin for maintenance & care and short-term storage prior to a number of aircraft being re-delivered to Vueling Airlines by lessors. Dublin Aerospace collaborated with Eirtech Aviation who re-painted the aircraft prior to delivery to the customer.

                                          

The company will work with it’s shareholders Airbus and Air Asia also in due course with potential Global footprint/Joint-Venture partners to bring work to Dublin , and may in the medium term re-open the avoinic component repair shops if it can secure a high-volume of work, also the company plans more hangarage and it plans to keep its shape and cost base discipline.

                                      

An exciting future lies ahead for Dublin Aerospace having recently won new contracts from British Airways and Cebu Pacific. It's highly competitive cost base and unique employment model with highly productive workforce has set the foundations for future growth of the company , which will be a win-win for it's customers, employees, shareholders and Ireland Inc. 　

Dublin Aerospace Milestones:

3th September 2009: Dublin Aerospace launch operations

7^th October 2010: Wins 5 Year Easyjet Airbus A319 Landing Gear Contract

27^th September 2011: Wins 2 Year Aer Lingus 8 x A320 Base Maintenance Contract

21st October 2011: Executive Chairman Conor McCarthy Emerging category Ernst & Young Entrepreneur Of The Year 2011

3^rd November 2011: Opens new €4.5 million Landing Gear Centre

3^rd November 2011: Boeing approved Boeing 737NG Landing Service partner


EOY TV: Dublin Aerospace Executive Chairman Conor McCarthy

Go to Link: http://www.eoy.tv/entrepreneur_detail.php?eID=42

For more Information:

Head of Sales: Frank Burke
Email: frank.burke@dublinaerospace.com
Phone: 00 353 1 8126897
Website: http://www.dublinaerospace.com/

Irish Airlines Report March Traffic

                                                          

Aer Lingus announced that it carried 809,000 passengers in March up 8.2% with the airline carrying 663,000 short-haul passengers up 5.4% with a load factor of 72.6% up 3.4% and 73,000 long-haul passengers with a load factor of 82% up 8.2%. The Aer Lingus Regional Franchise operation carried 73,000 passengers up 30.4% coutinuing its strong performance ,and as usual the carrier does not release traffic figures for the United Airlines Washington Dulles to Madrid route.

                                                       

Ryanair announced that it carried 5.5 million passengers in March down 4% with a load factor of 79% down 1% and in the rolling 12 months to the end of March it carried 75.8 million passengers. On the 26^th of March the carrier opened its new Billund Base with two Boeing 737-800s and 28^th of March the airline opened its first Polish base in Wroclaw with a single Boeing 737-800, thus as the airline opens new base and resumes seasonal routes the growth will turn positive. 

The carrier removed two Boeing 737-800s from service EI-DHI c/n 33818 on the 20^th of March and EI-DHJ c/n 33819 on the 26^th of March and are stored in Prestwick.

Ryanair Boeing 737-8AS Deliveries:

EI-EVI Boeing 737-8AS c/n 38502 Delivered 2/03/12

EI-EVJ Boeing 737-8AS c/n 38501 Delivered 08/03/12

EI-EVK Boeing 737-8AS c/n 40928 Delivered 14/03/12

EI-EVL Boeing 737-8AS c/n 40299 Delivered 24/03/12

European Short-Haul Pressure

The market pressures in the European short-haul market continue to intensify as airlines struggle to remain competitive in an increasing hostile environment as revenues are eroded and cost and competitive countinue to multiple creating new challenges, the rate of change to adopt is increasing all the time therefore standing still is no longer an option with a middle of the road strategy when it comes to cost control.

                                                                

Air France announced on the 20^th of March a new ‘Transform 2015’ plan aimed to restore the airline to sustainable profitability with particular emphasis on the short-haul and medium haul markets, where it and its regional subsidiaries made an operating loss of €500 million in 2011. To turnaround the operation the carrier plans to consolidate the operations of  Brit Air , Cityjet and Regional Airlines into a single unit which have yet to be defined, also its low-cost subsidiary Transavia France which operates four Boeing 737-800s from Paris Orly will be expanded under  its current brand or another.

                                                                                              

Brussels Airlines according to media reports was considering moving its HQ to Ireland or Luxembourg to enable the carrier to compete against Ryanair due to favourable tax and employment conditions, although the carrier later rejected the idea stating it was option. The opportunity was seized by the Walloon government who made an offer to Brussels Airlines to re-locate its base from Brussels National to Brussels South Charleroi saving the carrier €29 per passenger.

                                                                   

Finnair announced on the 22^nd of February it was in negotiations with potential partners to form a JV to take over the operation of the European short-haul network, which would enable it to reduce costs and have a competitive cost base, as low-cost carriers Norwegian Air Shuttle and Ryanair continue to develop their presence in the Finnish market.

                                                                   

Iberia launched its new lower-cost production operation Iberia Express on the 25^th of March with four Airbus A320s from its Madrid base which will play a vital role as a feeder for the long-haul network, despite strong opposition from the Iberia unions. The Iberia Express operation will grow to 14 A320s operating 17 routes with 500 employees by the end of the year eventually the fleet will grow to 40 A320s by 2015 making a contribution of €100 million to the IAG group.

The LCC’s in Europe will continue to drive on-going re-structuring of the legacy carriers in Europe in an ever-changing landscape ,for certain they must not take their foot off the brake in on-going cost reduction to maintain competitiveness to ensure their long-term survival.

Aer Lingus: Independence Day

                                                                                  

 “Neutrality contributes to the bottom line it is paramount”- CEO Christoph Muller

In recent weeks their has been speculation as to whom to the government will sell it’s 25% stake however the sale process is a long way off as Market conditions remain extremely tough as a number of flag carriers in the EU are up for sale, IATA has warned that high fuel costs will adversely impact on airlines profitability and domestic demand in Ireland its core market remains very weak. The Government has indicated it will sell the shares at the "Right Price and Right Time".

The Aer Lingus Management team has consistently stated since the adoption of the Hybrid Business Model (elements of LCC & Legacy model) which has restored profitability, that it is essential the carrier remains independent as is key to the future leveraging its geographic position and Dublin Hub to create new traffic flows using multiple partnerships.

An Aviation Week Top-Performing Airline ranking report December 2010 ranked Aer Lingus in position 6 out of 10 legacy carriers, having jumped 8 places on the December 2009 ranking. The report stated ‘Carriers can still thrive without consolidating or joining an alliance, if they have the right business plan’.

There is growing opportunities to leverage new partnerships to access the fast growing BRIC countries as airlines from these countries add new frequencies and routes to major European hubs (Frankfurt, London Gatwick, London Heathrow and Paris CDG), therefore it is of benefit of the airline and Ireland Inc that it remains independent rather than be aligned to a single carrier or alliance.

The airline has multiple agreements with Aer Arann Regional (Ireland), Air France-KLM (Amsterdam), British Airways (London), JetBlue Airways (Boston/New York JFK), United Airlines (Chicago) making an equal contribution to revenue/profitability, the Carrier is the largest feeder to British Airways (Heathrow), JetBlue Airways (New York JFK) and Virgin Atlantic. Therefore to align with one carrier will severely undermine profitability.

The airline could potentially leverage its London Heathrow slot portfolio to add new partnerships post the IAG Group take-over of BMI Airlines (Star Alliance) and/or further develop the existing interline agreement with British Airways (IAG).

The airline stated in its 2011 Annual Results “The Group will in 2012 further study the viability of a North Atlantic bilateral using anti-trust immunity, i.e. the legally permissible full co-ordination between Aer Lingus and another airline on scheduling, pricing, revenue management, marketing and sales on selected routes”.

This could set stage for the carrier to deepen its strategic relationship with JetBlue Airways as the carrier indicated on the investor day on the 28^th of September 2011, the next phase was to develop code-share and Global Distribution access leveraging low-cost web to web platforms, which could see the JB code placed on Aer Lingus flights from New York JFK in due course.

The Aer Lingus CEO Christoph Muller stated on the publication of the 2011 Annual Report it would announce a “New Era of Strategic Partnerships”. On the 14^th of March the first phase of the strategy was announced when Aer Arann Regional would re-brand as Aer Lingus Regional with effect from the 25^th of March.

The airline rolled out the Sabre Airline Solution system as part of an IT systems upgrade enables the carrier to add new partnerships in tandem as it develops the economy product by the bundling of service features (Bag & Seat) to appeal to legacy carriers. Thus the foundations of the independence are in place to enable a multiple partnerships to be expanded in due course.

Aer Lingus is ideally placed to reap the benefits of the growing trend of emergence of JV’s within alliances as platform to maintain independence leveraging its brand and slot portfolio, to tap into Irish Diaspora of 70 million people throughout the global through partnerships, this strategy will enable the carrier to maintain it’s unit cost advantage without a trade buyer infecting the cost base to a higher level.

Aer Lingus Partnerships

http://www.aerlingus.com/help/help/aerlinguspartnerships/

Aer Lingus & Ryanair new aircraft orders

The prospects of Aer Lingus and Ryanair securing very attractive new aircraft  pricing in the next 18-24 months have improved considerably as cracks begin to appear in the current aircraft order cycle as industry pressures begin to mount, it will be interesting to see will the carriers be able to secure similar deals to those after 9/11 when both carriers placed orders enabling them to widen the unit cost differential with competitors can they repeat the trick again?

The factors: 1)  American Airlines is likely to consolidate post Chapter 11 process & on-going consolidation in US Airline industry 2)  Lufthansa considers freezing capacity (2011 Annual Report) 3)  A recent S&P report on the European airline sector highlighted GDP/Fuel issues 4) IATA warns airlines face bankruptcy if fuel costs rise from $120 to $150 per barrel particularly in Europe 5) Industry analysts have warned of a bubble with the existing aircraft order backlog due long-lead times 6) Airbus is concerned with the state of the Indian Airline market (Long-term prospects good) 7) ILFC lease rates under pressure 9) Airbus and Boeing some orders on the books are 'paper orders' ISTAT12 10) AerCap CEO Aengus Kelly ‘Clearly there is a vast amount of over-ordering’ (WSJ 23^rd February 2012) 8) Significant re-structuring of EU short-haul market


Aer Lingus and Ryanair are ideally  placed to seize new aircraft order opportunities as they arise in the next 18-24 months as both carriers are profitable and growing unit cost differential with competitors with robust balance sheets.

                                          

                                      A fuel-efficient engine option for Airbus' A320 Family

                                                     

                                    

                                            

                                                      New Boeing 737 MAX

                         

                                                          

Ryanair: Managing Demand

Ryanair 737s at Cork Airport: Picture Courtsey of Paul Daly

 

Ryanair has responded to evolving market conditions with speed through the Chief Operating Decision Maker (CODM) modelling to allocate the aircraft in terms of where it will generate the highest yield and revenue to achieve the highest rate of return rather than individual route performance, thus protecting its margins as fuel costs expected to rise by €350 million in FY2012.

Ryanair announced on the 6^th of March the airline announced that it was to cease routes from its new Budapest Base to Chania, Palma, Rhodes and Trapani citing weak demand, and replace them with two new routes to Billund and Dusseldorf Weeze and increase frequency on routes to Barcelona London Stansted, Paris Beauvais (Portfilo.hu 6^th March 2012)

Ryanair announced on the 2^nd of March it would not proceed with plans to base an 8^th Boeing 737-800 at Faro, with the carrier to terminate three routes to Bergamo, Marseille and Leipzig while frequency will be cut on seven routes (Bournemouth, Beauvais, Bristol, Cork, East Midlands and Maastricht citing “Operational reasons”, although local media report indicate low demand on the routes (Low Cost Portugal 6^th March 2012).  

The Ryanair Budapest and Faro Base announcements demonstrate the ability of the carrier respond quickly to market conditions axing underperforming routes and replacing them with new routes, as the Euro Crisis evolves asset allocation will play a key contribution to FY2012 results. In the context of the Irish Market the reduction of the frequency on the Faro to Cork route by one weekly is interesting as Aer Lingus is to increase frequency on the route by one weekly frequency indicating strong outbound summer traffic on the route.

                                                            

Irish Airlines Report February Traffic

Aer Lingus announced that it carried 658,000 passengers in February up 8.8% with a load factor of 67.3% up 1%. The airline carried 45,000 long-haul passengers up 15.4% with a load factor of 64.9% up 2.2% and 554,000 short-haul passengers up 6.9% with a load factor of 68.5% up 0.9%. The Aer Lingus Regional operation carried 59,000 passengers up 22.9% and as usual the figures exclude passengers carried on the United Airlines Joint-Venture Washington Dulles to Madrid route.

The Aer Lingus short-haul load-factor of 68.5% is above the AEA Airlines of 65.4% and on the long-haul the Aer Lingus long-haul load factor of 64.9% versus AEA Airlines at 72.6%, the information in based on AEA Data for the four weeks ended 26^th of February.

                 

Ryanair announced that it carried 4.47 million passengers in February down 2% with load factor of 76% and in the rolling 12 months to the end of February it carried 76.1 million passengers. The carrier’s traffic will have been boosted by the collapse of Malev Airlines and Spanair with the launch of the new Budapest Base and increased demand on routes from Barcelona, as the carrier reported 44,000 rescue bookings from Spanair passengers.

In Europe the Danish Trade Union 3F is seeking to negotiate a collective bargaining agreement for employees for Ryanair’s 48th European Base in Billund B, which has been rejected by Ryanair “Since all our workers are employed on Irish air territory and under Irish contracts, we have no interest in negotiating with the Irish, the Danes or any trade union” (NewEurope online 6^th March).

Ryanair opens its 50^th European Base in Paphos in April , however one of the unions representing Cyprus Airways staff warned that it will make a formal complaint on the joint agreement between the state and Hermes Airports to local and EU officials unless they get the same incentives as Ryanair (Famagusta Gazette 6^th March).

                                                        

                                                          

IAG CEO Willie Walsh: Consolidation through Joint-Ventures

The IAG CEO Willie Walsh gave an insight into his views of consolidation in the airline industry, on the announcement of the IAG 2011 Full Year results on the 29^th of February in a rapid changing environment where there is opportunities and threats.

A constantly theme on the conference call was the need for further consolidation with a particular emphasis on the US Industry, this is very interesting on the context of a potential marketing tie-up between American Airlines (Oneworld) and JetBlue Airways. The IAG CEO previously stated interest in JetBlue Airways given its strong position in the New York market where it is competing against Delta Airlines (JFK) and United Airlines (Newark).

The IAG CEO Willie Walsh views on the evolving consolidation are interesting as Aer Lingus considers its strategic options, Willie indicated that Joint-Ventures offer many benefits (Cost/Revenues) without the full issues of a merger and there is a growing trend of these Joint-Ventures within Alliances, in the Oneworld Alliance two separate JV’s are in place for different global markets with the trilateral JV AA/IB/BA (Atlantic) and IB/BA/QF (Asian/Australia).

The carrier is yielding benefits of developing a Singapore Hub where sectors are shared between partners (British Airways and Qantas Airways), thus reducing operating costs and allowing re-deployment of aircraft within the networks, as BA has been able to re-deploy capacity onto the Atlantic. The IAG Group is pursuing a new JVA with JAL Airlines for which it expects regulatory approval from the Japanese authorities in the next 12 months.

                                                    IAG CEO Willie Walsh Quotes:

‘Airline failures are the cheapest form of airline consolidation’.

‘We will focus on the integration of BMI and we are open for further opportunities where it is sensible effective consolidation’.

‘There is room for further consolidation in the US I would be amazed if not’.

 

‘Growing trend of emergence of JV’s within alliances’.

‘Joint Ventures make sense consolidation working very well’.

'This is an exciting time for the US Industry it has to consolidate further as this would change the regulatory environment’.

It will be interesting to see how the IAG acquisition strategy evolves as joint-ventures rather than acquisitions come into prominence in the industry, given the airline had drawn up a list of 12 potential targets to pursue in 2010 ,in the context of a very challenging market environment, as JV’s would allow consolidation synergies without impacting on the balance sheet.

                                                          

Ryanair Vs Airports: The Supply Chain Battle



EI-EVF Boeing 737-8AS Ryanair at Cork Airport picture courtsey of Paul Daly



Ryanair announced on Tuesday 21st February that it was not proceeding with plans to launch four new routes from it's Edinburgh Base which it announced a few weeks ago citing being unable to agree a competitive cost base, as a result it is reducing the base fleet from 7 to 6 Boeing 737-800s.

However deeper analysis suggest that the carrier may be leveraging its position at Edinburgh as the BAA narrows the bidding process into the second round of bidders ahead of the sale as directed by the Competition Authority.

The airline indicated it may reduce the base fleet further in the winter as negotiations continues to extend the five year base deal from October 2012, and in the medium term hinted that RAF Leuchars could have potential as a joint civil-military airport.

Thus the carrier has flexibility to deploy the aircraft where they can earn the highest rate of return (Existing or New Bases), as the model matures like Southwest Airlines, they will use a mix of primary and secondary airports.

A key trend for the airline is the rising cost of fuel which accounted for 41% of the cost base in Q2 versus 38% in 2010 thus putting pressure to further reduce non-fuel unit costs, as consolidation will create opportunities to reduce airport unit costs.

The carrier is mirroring the low-cost retail model using economies of scale as passenger volumes grow from 73 million to 75 million, thus extracting unit cost reduction from suppliers (Airports) as existing 156 airports on its network actively compete against each other for traffic and routes, the on-going consolidation process within the EU will accelerate this competitive tendering process, to extract unit cost reduction.  

The Edinburgh dispute highlights the carrier obsession to drive airport unit costs, as it is a cost line with scope to achieve significant savings given multiple airport suppliers, given current fuel costs at $123 per barrel and as Ryanair fuel hedges unwind (It indicated €350 million fuel cost challenge for FY2013), it is highly unlikely that Edinburgh Airport will be the only airport put under the spot light ahead of the Winter 2012 Schedule.